Education is an important aspect of financial stability for consumers. Many consumers, for example, do not fully understand how credit works. This lack of understanding may lead consumers into mistakes that may hurt their credit scores and lower their confidence in managing their credit. This lack of understanding often occurs with younger and less-experienced consumers, as well as consumers with a poor credit history. Such consumers may struggle to gain access to the credit they want or need. Once a consumer is issued, or extended, credit, they may not understand what it is; how to build it; how to maintain it; and/or how to use it in a wise manner. When a consumer makes a mistake with their credit or has made poor credit decisions in the past, they may not understand the mistake, and/or may struggle to correct such decisions in the future. Consumers who have such experiences may feel like they lack control of their own financial future, and often lack the confidence to deal with sometimes confusing and emotional financial episodes. These experiences may ultimately hurt the consumer's credit and expose them to unnecessary financial risk.
Many institutions lend money or extend credit to their consumers. A given institution's lending or credit business generally represents an investment with some amount of risk and some amount of reward. These institutions typically enter the lending and credit market to generate profit, so they generally try to minimize risk in their lending and maximize reward. A given institution may manage risk by being selective of their consumers and limiting the amount of credit that is extended. A given institution may manage reward for a consumer who displays good credit traits by adjusting interest rates, which represent the price of credit to consumers.
An ideal consumer for an institution is typically one with a good credit history, one that pays their bills, and one that is interested in borrowing funds from the institution. The ideal consumer typically pays a lower interest rate relative to a non-ideal consumer. Such ideal consumers represent low risk and modest reward. Unfortunately, not everyone is financially perfect. Many consumers, such as young and inexperienced consumers, for example, may have little or poor credit history. Such consumers represent more risk. Institutions may still want to lend money or extend credit to these consumers, but are less sure of the reward. A higher risk consumer may be extended less credit at higher interest rates, but the institution doesn't necessarily know whether they will be paid the full reward, if anything at all. Consequently, it may be in many institutions' best interest to develop their consumers into educated and financially stable consumers.